Bill ‘will make annuity market more complex'

The Annuity Bureau says that while the Bill may lead to simplicity before retirement, proposed changes add “unwelcome complexity to prescriptive benefits when pension funds mature”.

Head of marketing David Marlow claimed that adding another layer of limited price investment benefits from 2005 would act as a disincentive to consumers in the annuity market.

He also criticised the Bill’s lack of detail.

Marlow said: “The Pensions Bill does not clarify whether rules prescribing different annuity bases by pension regime type will be scrapped. We don’t know, for example, whether funds accrued in personal pensions from contracting-out – protected rights monies – will be treated the same as funds accrued from employee and employer contributions.”

Marlow also believes legislation governing prescribed benefits is “too restrictive” and will limit the type of annuity policyholders can purchase once their funds mature.

He argued that members who have built up their own pension funds should have the freedom to choose annuities according to individual needs.

“Surely, once people have built up their own pension funds, they should be able to exercise a free choice as to which pension annuities they buy? Most select optional benefits according to their individual needs – why on earth should these extras be chosen for them?”

Winterthur Life pension strategy manager Mike Morrison said the government’s drive for later retirement meant an increase in opportunities for shaping annuities to fit the needs of individual consumers.

He said: “An employee in his or her 60s who chooses to work three days a week may may draw pension benefits to cover the shortfall. This changes the shape of annuities and is likely to increase demand for short-term products.”

Morrison added: “While there has been increased simplicity pre-retirement, the post-retirement market is getting more complex. The focus now needs to shift away from why put money into pensions but what to do with it when you take it out.”

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